What’s notable about these figures? Well, the big-picture Microsoft question is how it is coping with industry transitions, in particular the transition from on-premise servers and desktop software to cloud services and mobile device clients. Of course you can debate the extent and speed of that transition, but I believe it to be real.

The story here is that Microsoft’s traditional products are still amazingly profitable, and that the effort invested in making Windows 7 a decent upgrade from Windows XP or Vista is paying off. Further, Microsoft Office sales actually exceed Windows sales. It does not really surprise me; despite the existence of capable cheaper or free alternatives, I rarely see business PCs that do not have Office installed; and Microsoft is busy locking in Enterprise customers with hooks between Office client and SharePoint server.

On the other hand, Microsoft’s progress in cloud and device looks amazingly bad. The figures are not all that easy to read, since Azure, Microsoft’s cloud platform, is part of the Server and Tools business; and BPOS, the cloud-based Exchange and SharePoint offering, probably sits there too. The “Online” business in the figures covers Bing and MSN, and earns its money primarily from advertising. This part of the business managed to turn in a loss greater than its revenue, which is remarkable considering how successful Google is with that same business model.

Entertainment and Devices is also hard to read. If you read the press release, it turns out that the reason revenue increased was not thanks to the success of Xbox or an unlikely rebound for Zune or Windows Mobile. Xbox actually declined, and so did Windows mobile, and the increase was thanks to increased sales of Windows Embedded:

Windows Embedded is an interesting story. I don’t know how its figures break down, but I research things such as digital signage and point of service systems from time to time, and there is a lot happening in that space which deserves more attention from the technical press, especially as it directly touches our lives.

Despite the Embedded success, Entertainment and devices also turned in a substantial loss, though nothing like the horrors of Online.

Conclusions? One is not to write off Microsoft; it’s still a highly profitable giant. But the other is that the company desperately needs a big success outside Windows and Office to convince us that it really has a bright future. A sparkling launch for Windows Phone 7 would do nicely.